Technological Change, Firm Heterogeneity, and Wage Inequality

The paper presented in this ZEW Research Seminar shows that task-biased technological change is an important driver of the rise in between-firm wage inequality in Germany. Using rich administrative social security data, the authors document that firms within industries have become more heterogeneous in terms of their total factor productivities, the share of abstract workers that they hire, and the wages that they pay to workers in a given task. Moreover, within industries more productive firms experience larger employment growth, larger increases in their abstract share, and larger wage growth for both abstract and routine workers. They show that, within the context of a heterogeneous firm framework where firms differ in their technology of production, an aggregate task-biased shock is able to generate these patterns. In line with the predictions of the model, they find that industries with more ICT and robot adoption have experienced larger increases in worker sorting and between-firm wage inequality within tasks.